How Social Networks Shape Our Economic Lives

Mitch GreenIPh.D. Student

Economics & Social Sciences Consortium

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Why Networks?

• The socially embedded economy

• Production & Distribution are social

acts

• Social systems are constituted by

social networks

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Networks Illustrate Connectedness

• There are interrelations everywhere!– Circular production – i.e. inter-industry

flows– Social Accounting Matrices– Consumer choice – our behavior

influences others within our social networks, vice versa.

– Corporate governance networks– Financial system

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A Brief Tour Through Economic Networks

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Networks of Inter-industry Flows

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Consumer Choice

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Financial SystemHypothetical financial system consisting of 1,000 “balance sheets”

Red notes indicate balance sheets most susceptible to liquidity crisis, in the event a “too big to fail” institution faces insolvency.

Just one TBTF insolvency

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Corporate Governance Networks

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Corporate Governance Networks

Red indicates directors from finance & insurance sectors

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Method• Always iterative

– i.e. networks evolve• Always grounded

– The Method of Grounded Theory (Glaser & Strauss)

• “Babylonian Mode of Thought”

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Significance of Interlocking Directorates

• Offers a glimpse into the interdependence between corporations

• Interdependence reflects the need to govern markets

• Networks of interlocking directorates suggest a degree of centralized planning in the economy

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Centralized Private Sector Planning

Core

Periphery• Core: CPSP Firms – large multinational corporations embedded networks of market governance institutions. Powerful.

• Periphery: occupied by much smaller firms, with little power. Accessory to central core.

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So What?• Mainstream economic theory can’t

explain this degree of interconnectedness.

• But, policy is based upon mainstream theory.

• We act as if there are no planners – i.e. the “invisible hand.”

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This Changes the Question…

• How shall we choose the planners?

• For whom shall they plan?

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Questions?

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